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Economic Gangsters

Columbia’s Ray Fisman and Berkeley’s Ted Miguel are two of the most creative and interesting economists I know.

Each is driven to better understand just what keeps poor countries in poverty, and they are willing to try some pretty amazing research strategies to figure it out.

They have traveled far and wide — both geographically and intellectually — and in their beautifully written book Economic Gangsters, they shine a well-honed statistical spotlight on the twin evils of corruption and violence.

The book is a dead-set page turner, and there’s nothing more fun than feeling like you are next to them as they travel the world in search of the scoundrels responsible for so much suffering.

Ted and Ray are the Briscoe and Logan of economic development, and you can’t help but cheer them as they try to figure out just whodunit. These guys are passionate about development, about economics, and about explaining just why the new wave of development economics is so darn interesting. Their excitement and passion is contagious.

Neither Ted nor Ray are strangers to readers of this blog. In fact, some of the stories in their book have been touched on by my fellow freako-bloggers. These are the guys who:

• Documented crony capitalism in Indonesia, by showing how the stock prices of various firms rose and fell with President Suharto’s health.

• Illustrated the presence of a culture of corruption, by showing that U.N. diplomats from corrupt nations were also more likely to run up (and not pay) hundreds of parking tickets in New York. And it also turns out there’s a culture of war — and soccer players from war-torn nations are more violent, earning more yellow cards.

Beyond these stories, Ray and Ted illustrate the power of the new movement toward “forensic economics,” in which painstaking data analysis can help us better understand just who the bad guys are, what they are doing, and why.

And there’s more good news: the authors have also set up a blog to go with the book (Dubner and Levitt can tell us about how that works out!). Here’s Levitt’s cover blurb for Economic Gangsters: “Rarely has a book on economics been this fun and this important.”

Joe Smith

You are right that correlation does not prove causation. On the other hand we have places like Zimbabwe which have gone backwards under violent corrupt rulers.

The problem with violence and corruption is that they both increase risks and transactions cots with the result that very few investments can be justified. It makes no sense to produce excess food, or even to store food, or to accumulate any capital if doing so will simply make you a target. Violence and corruption are THE biggest development obstacles and challenges.

Tom

October 22, 2008 @ 8:41pm

The correlation in the yellow card study looked pretty weak.

Mitchell

Jayson Virissimo

October 18, 2008 @ 9:23am

"this one’s easy- pull out a map and point to any country that was colonized (throw a dart south of the equator)- there you have a poor country- any country that was not colonized is wealthy- and what keeps them poor is ongoing economic imperialism: they are not allowed to develop unless they open up to foreign investment, which proceeds to pull wealth out of the country- ironically now, we are all faced with our own medicine- if foreign capital decides to divest from our country, thereby making a run on the dollar, we will be in deep kimshee (presuming korea is poor)"-frankenduf

Let's throw some darts...

According to the CIA World Factbook out of the top 20 highest GDP per capita, adjusted for purchasing power parity, 7 are former colonies.

These include:

Bermuda

Singapore

United States

Cayman Islands

Hong Kong

Canada

British Virgin Islands

Its not as simple as colony=poor, non-colony=rich

Read more...

Andrew M

October 21, 2008 @ 3:16am

Re #1. Wrong in the other direction, too:

Liberia, Ethiopia, and Afghanistan, three of the world's poorest countries, were never colonized.

Iran was also never colonized, but oil has made it rise to moderately poor.

LL

October 18, 2008 @ 4:14am

Correlation is not causation. If you look at most crappy economies, you'll find violence and corruption used to maintain power structures. Perhaps it is only wealthy societies that have sufficient resources to police and educate their citizens.

Another aspect is geographical determinism (AKA crappy location syndrome). Jared Diamond, in 'Guns, Germs and Steel', demonstrates how isolated and under-resourced countries like Papua New Guinea have always had massive developmental disadvantages compared to bustling thoroughfares like most of Europe, who also had suitable herd animals and easily-produced agriculture.

The good news is that when a nation's infrastructure and medical care improve, many other elements of that nation are able to reach their economic potential. A lot of aid agencies address immediate disasters which are mere symptoms of a larger problem, but many are working to build foundations for real growth in struggling economies.

Read more...

Peter

October 18, 2008 @ 4:22am

To #1:

Hong Kong was colonized by Britain until 1997.

Many Chinese coastal cities were colonized (Shanghai, Qingdao, Tianjing, etc.) by various Western nations and Japan up until the end of WWII. (In fact, one may argue that the entire country was under occupation by foreigners for nearly three centuries because the rulers of the Qing dynasty were Machus.)

India and Singapore were colonized by the British.

Both Taiwan and Korea were colonized by the Japanese (and the Dutch for Taiwan).

All of the above are economic (and, for some, democratic) successes, except for late starting and fast developing India.

Frankenduf, you may want to re-visit your theory.

brindelin

October 17, 2008 @ 6:32pm

RE #1

Wasn't the United States colonized?

Colin Suttie

October 17, 2008 @ 7:13pm

RE #1

Australia was also colonized, not so easy really is it?

hal

October 18, 2008 @ 12:03am

Misses the highest correlation - religions and birth control/abortion. Poverty has a high correlation, esp. to Catholicism.

O

October 17, 2008 @ 6:07pm

The effect of corruption receives far too much attention when considering its tenuous relationship to poverty.

http://pdf.usaid.gov/pdf_docs/PNACW645.pdf

http://www.globalissues.org/article/590/corruption

The broad generalization that all colonized countries are poor is just as accurate.

steve pesce

October 17, 2008 @ 5:09pm

Unless they're ready to use those guns to apprehend the crooks on Wall Street, then it does us no good. The SNL bums went to jail, the Enron bums went to jail. Now it's time for these wall street criminals to GO TO JAIL.

frankenduf

October 17, 2008 @ 5:01pm

this one's easy- pull out a map and point to any country that was colonized (throw a dart south of the equator)- there you have a poor country- any country that was not colonized is wealthy- and what keeps them poor is ongoing economic imperialism: they are not allowed to develop unless they open up to foreign investment, which proceeds to pull wealth out of the country- ironically now, we are all faced with our own medicine- if foreign capital decides to divest from our country, thereby making a run on the dollar, we will be in deep kimshee (presuming korea is poor)

Joe Smith

October 17, 2008 @ 5:14pm

There is nothing new under the sun. Anyone interested in this topic should consider how Bishop Absalon of Denmark established Copenhagen (a contraction / corruption of the Danish for Merchants' Harbor) in a relative wasteland beset by pirates and brigands.

Matt

October 17, 2008 @ 5:05pm

I was never planning on commenting on this book. However, I recently purchased the book due to the blurb from the Freakenomics authors.

The book presents some interesting concepts, the Suharto analysis. Overall though, I though the book was poorly written, and lack any intellectual depth. The writting style of the book was painful. It seems to have been written to aspiring first year economic students, in which the authors continiously trivialize the limits of research. Additionally, the authors have a very conservative view of the human condition and the limits of wealthy nations to affect change. Finally, the book is so poorly sourced that most of its revelations are presented as little more than conjecture, which become very frustrating. 1421/ 1434 were better sourced.

However, the book is a quick read, and does provide some basis for thought in the real world. I recomend - but it is no 'freakonomics' and does not even approch 'Traffic'.

Read more...

radub

October 17, 2008 @ 8:43pm

I am curious, what is the relationship between the "new forensic economics" you mention and forensic economics as defined by http://nafe.net/default.aspx ?

reservoirgod

October 17, 2008 @ 7:32pm

Yes, the US was colonized and the colonists never left. Ask the Iroqouis nation how US colonization worked out for them. In fact, the colonists not only stayed, they became the majority population, invited more colonists and then 300 years later branded the indigenous people illegal aliens.